Merkel without the Market or the Courage – AP –

By Patrick Chamorel
die Welt
Conservatives are questioning whether Angela Merkel has the courage to take actions that will provoke her social democrat partners, or whether she will give up her strong commitment to the free market political philosophy. Is it the fate of market-oriented political leaders to come short of their own promises and the hopes of their supporters? Are their shortcomings traceable to similar causes or do they tend to vary widely with the personalities of leaders and national political contexts?

This article is a slightly modified version of the German article “Merkel ohne Markt und Mut – Gastkommentar” that was posted in Die Welt on May 24, 2006.

If most free market liberals have yet to lose faith in Angela Merkel, they certainly are losing patience. They are disappointed by the low priority Merkel has placed on structural economic reforms as opposed to budget orthodoxy and her preference for raising taxes rather than cutting spending to reduce the budget deficit. They are asking why a self-proclaimed free market reformist would raise taxes on the rich in typical social democratic fashion. And why does Merkel refuse to do away with a VAT increase that an overwhelming majority of economists, CDU politicians and ordinary Germans believe would not only hurt economic growth but is also unnecessary to meet European budget deficit requirements? In fact, conservatives wonder whether Merkel lacks a strong enough commitment to market policies and philosophy and her political base, or whether she lacks the political courage to risk alienating her SPD partners.

Is it the fate of market-oriented political leaders to come short of their own promises and the hopes of their supporters? Are their shortcomings traceable to similar causes or do they tend to vary widely with the personalities of leaders and national political contexts?

George W. Bush’s free market convictions are arguably stronger than Angela Merkel’s. The former Texas oilman cut taxes massively and relaxed government regulations in areas such as the environment. He chose to spend the political capital of his reelection on an attempt to privatize the public pension system, despite a reluctant Congress and a skeptical public. Over the last few years, however, Bush has faced a mounting revolt among the free marketers who form a key component of his political base. These critics point to his failure to rein in the spending spree of his Congressional majority on social as well as national security programs: outlays have increased in average by over 10% a year since 2000, the fastest rise of spending as a percentage of GDP since FDR. Yet, Bush until recently has refused to use his veto or credibly threaten to do so. He has also sought a larger role for the federal government in areas such as education, religion, healthcare and energy. Conservatives are still seething about Bush joining a Congressional initiative to establish a costly and ineffectual scheme to reimburse prescription drugs for seniors. So why has Bush betrayed the free market/small government philosophy he claims to share with his political base? For one, electoral imperatives have been paramount under political strategist Karl Rove and they sometimes conflicted with respect for free market principles, such as in the case of steel import quotas. Bush’s political base has been built around social conservatives, not free marketers. Another reason is that the “war on terror” trumped all other considerations: it required a bigger government as well as greater spending to secure political support. This is not the context in which Angela Merkel operates.

Jacques Chirac provides a contrasted perspective. Chirac earned his pro-market credentials as the prime minister who privatized massively in 1986-88. He sought to undo Mitterrand’s socialist reforms but he was also influenced by Thatcher’s ideas. The turning point was Chirac’s resounding defeat by Mitterrand in 1988, which he attributed to his excessive zeal to pursue unpopular market reforms. He felt vindicated in 1995, first when he won the presidency by running on the left of his party, and then at his own expense, when massive opposition derailed prime minister Alain Juppé’s attempt to reform the public sector. May be Angela Merkel should be reminded that Juppé’s first decision was to raise the VAT, which hurt economic growth and sent the wrong signal about his reform agenda.

After his reelection, defeating Le Pen in 2002, Chirac justified the timidity of his reforms by the left’s contribution to his victory. He predictably backtracked several times in the face of street protests, in part because his political beginnings in the 1960’s made him fear uncontrollable social unrest. Chirac’s failure to reform stems from his belief that market reforms are politically counterproductive and that the French are culturally resistant to them. But they are also explained by little faith in the virtues of markets along with his lack of political courage to challenge street protests and negative public opinion polls. Whatever his motivations, the result is clear: insufficient reforms have led to a failed presidency, the country’s deepening crisis and Chirac’s loss of his political base to rival Nicolas Sarkozy. Unlike Chirac, Sarkozy believes that reforms are not only possible but indispensable and unavoidable; people are not afraid of them but yearn for them. Merkel shares Sarkozy’s convictions but neither’s political courage has been fully tested. Merkel might need her own equivalent of Thatcher’s miners or Reagan’s air traffic controllers’ strike to pass the credibility test and forge ahead.

Berlusconi’s prime ministership, like Chirac’s presidency, has been judged a failure. Berlusconi has been unable to advance market reforms in spite of his commitment to free markets. As Italy’s richest man and owner of the main media outlets, he lacked credibility and spent his political capital defending his business interests and his ethics. Moreover, economic reforms were not Forza Italia’s coalition partners’ highest priorities. Despite its pro-market inclinations, Forza Italia lacked doctrinal depth.

Among recent Western conservative leaders, Spain’s Jose Maria Aznar has arguably been the most successful in promoting market reforms. He mixed strong ideological convictions with pragmatism, determination and political courage in the face of opposition. In Austria and Denmark, Wolfgang Schüssel and Andreas Rasmussen have also achieved economic and political success as a result of vigorous market reforms. When left-leaning leaders followed in the footsteps of successful reformist conservative ones, they refrained from undoing their predecessor’s reform legacies and built on them, as illustrated by Clinton, Blair and Zapatero. Even if he has recently dramatically expanded the number of civil servants and increased spending on health and education to assuage the left of his party, Blair has been keen to introduce market principles in education and health in spite of the opposition of Gordon Brown and the majority of his party.

Market reforms have sometimes been initiated by the left and with success, for example in Sweden, Greece, Holland and in Australia in the 1980’s. Whenever conservative governments have succeeded them, for example in the case of John Howard in Australia, they have accelerated reforms. This is the situation Merkel finds herself in. She is helped by Schroeder’s initiation of market reforms, which has provided her with political rationale and momentum and a SPD partner largely converted to the cause of reforms. The main danger for Merkel is to incorporate the SPD’s concerns in her strategy to the point of letting them taint or overshadow her own and the CDU/CSU’s interests. She would risk losing sight of her main priorities and not being able to expand her political base around a solid core. She should not underestimate her own margins of maneuvers within the Grand Coalition: she would forgo opportunities to pursue her own agenda or be suspected of lacking political courage. Remember NATO’s largely unfounded fear of alienating Russia by expanding into Eastern Europe? Merkel might not turn out to be another Thatcher, but she does not have to be another Chirac.

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